©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. DESIGNING AN ENTREPRENEURIAL ORGANIZATION 12

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives  Describe how businesses are organized.  Discuss the role of strategic alliances in a new organization.  Explain how to identify the appropriate business site.  Discuss the most critical issues related to organizing people.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Design: Understanding the Way the Business Works  Organizational structure Finding the best fit, given the existing: Contextual factors (environment, technology, market) Design factors (strategy and models) Structural factors (complexity, formalization)

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Building Blocks of an Entrepreneurial Organization Figure 12.1

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Design: Understanding the Way the Business Works (cont’d)  Distributed forms of organizations Companies generally distributed on four levels: 1.Geographically (locally or across continents) 2.Organizationally by department or project group 3.Temporally by time zone 4.By stakeholder groups

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identifying Business Processes  Design the process map/flowchart that traces how information flows through the business.  Mapping leads to better decisions Number of people to hire Amount of equipment to purchase Type of facility for working Type of organizational structure to employ

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Virtual Enterprise  A virtual enterprise is a “business without walls.”  A temporary network of independent companies, suppliers, customers, even erstwhile rivals—linked by information technology to share skills, cost, and access to one another’s markets

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Virtual Enterprise (cont’d)  Its goal is to deliver highest-quality product at the lowest possible cost in a timely manner. Outsources in a virtual world Forms a network of strategic alliances Keeps distributed employees and strategic partners linked

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Location Strategy: Finding the Appropriate Business Site  Site decisions begin at macro level Choosing the region, state, and community Economic base Financial incentives Population demographics

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Location Strategy: Finding the Appropriate Business Site (cont’d)  Choosing a retail site The trade area Competition and character Accessibility  Choosing the service/wholesale site Some of same considerations as retail site (accessibility, attractiveness, trade area of sufficient size, etc.) No need for upscale version

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Location Strategy: Finding the Appropriate Business Site (cont’d)  Choosing the manufacturing site Access to suppliers Cost of labor Access to transportation Cost of utilities  The Lease–Build–Buy decision Ask the right questions at each stage Startup Rapid growth Stable growth

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Location Strategy: Finding the Appropriate Business Site (cont’d)  Alternatives to conventional facilities: Incubators Shared space Mobile locations Temporary tenant agreements

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. People Strategy: Organizing Startup Human Resources  Startup operations Organization chart tends to be flat Much work accomplished through informal organization or network of relationships New ventures adopt team-based approach rather than formal “departments” Often employ independent contractors

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Simple Organizational Chart for a Growing Business Figure 12.3

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. People Strategy: Organizing Startup Human Resources (cont’d)  Common leadership traps: Isolating themselves from the rest of the startup team Always having the one “right” answer Keeping people on board who are not up to the needs of the company Taking on too much too soon Setting unrealistic expectations Not building support

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Creating the Company Culture  The personality of the company, that intangible set of values that determines how and why the people in the organization respond to their business environment the way they do  Culture of startup derives from vision and values of founding team

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Aligning Culture and Strategy Figure 12.4

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Hiring the Right People  Important for an entrepreneur to understand how to hire Functions to fill The employee search Interviews  Human resource leasing Professional employer organization (PEO)

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Employee Risk  Risk management is a set of policies and their associated decision-making processes that reduce or eliminate risks associated with having employees.  Financial risks  Obey all rules and regulations

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Planning for Ownership and Compensation  The major issues: How much of the company to sell to potential stockholders? How much to pay key managers?  Compensating with stock An investor does not need to be an equal partner. Hire talent rather than give away ownership. Use cash for bonuses rather than stock.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Founder’s Stock  Known as “144 stock”  Payoff comes with liquidity event such as IPO or acquisition by another company  Stock is issued to the first shareholders of the corporation  Restricted by SEC rules

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Alternatives to Equity Incentives  Deferred compensation plans  Bonus plans  Capital appreciation rights  Profit-sharing plans

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. New Venture Action Plan Identify the processes and information flow in your business. Identify ways to operate like a virtual enterprise or at least to outsource some aspects of the business. Locate a site for the business. Decide whether to lease, buy, or build a facility. Determine the personnel required to run a business at startup or over the next three to five years. Create job profiles for positions in the business. Determine the ownership and compensation requirements of the business. Formulate a plan to find the best candidates for positions in the company.